Dividing businesses, professional practices & partnerships is often one of the most complicated and high-value assets in your Texas divorce. These interests differ from homes and bank accounts in that they involve valuation disputes, income, employees, partners, and significant future financial implications. Whether your asset is a small company or a family partnership, you need an aggressive legal strategy to protect your current and future interests.
Valuing Businesses
Valuing businesses is typically the most significant and contested issue when dividing businesses during divorce. Unlike valuing real estate, there is no calculator or formula that dictates what your business is worth. Different industries use different models to analyze comparable businesses and determine value. Business valuation typically uses income minus expenses, but it also requires consideration of additional factors.
For business valuations, you will most likely need to hire forensic accountants, business appraisers, and financial professionals. An experienced attorney can help guide you through this process, but a technical analysis of the business will be necessary. Disputes can turn a relatively simple divorce into a long and expensive legal battle.
Community Property vs. Separate Property
Just like other assets in your divorce, Texas divorce laws help determine what is divisible. The first step in division is to determine if your business is community property, separate property, or a combination of the two.
If a business is started during the marriage, it is presumed to be community property, regardless of whether both spouses worked in the business. Business interests established before marriage remain separate property, but any increase in value or income during the marriage, or the reinvestment of community funds in the business, creates a community interest claim.
For example, if you own a professional practice that you started before marriage, it will likely be deemed separate property. However, the income generated from the practice during marriage is community property. Any commingling of assets or failure to document separate property can result in these assets being divided in divorce.
According to one source, 57% of business owners who have gone through a divorce say their business has suffered financially, and 70% say they can’t focus on their work as much as before. 35% of business owners were forced to rely on outside assistance, such as friends and family, to keep their businesses running, and 3 out of 5 reported lower motivation and poorer mental health at work.
Dividing Partnerships
Another pitfall of dividing business assets is the issue of partnerships and closely held companies. Many times, these businesses have existing agreements that prohibit ownership transfers. In some cases, you cannot simply divide the company and give your spouse an ownership interest.
Typically, the Texas judge will award your spouse another asset of equal value to compensate them for their interest in the business. There are other alternatives, like buyouts or payment plans. However, these options can have major tax consequences.
When Litigation Is Necessary
Many divorces can be settled without going to trial. However, when it comes to dividing businesses, some property division cases require litigation. If spouses cannot resolve matters related to the valuation of business assets or allegations of concealed assets, court intervention will be necessary.
Fortunately, Texas judges have wide discretion in dividing businesses. They will listen to your argument and evaluate the evidence you present to the court. Your local court will depend on where you are in the state. For example, most Austin high-asset divorce cases are filed in the Travis County Civil and Family Courts Facility at 1700 Guadalupe Street, Austin, TX 78701.
Hire a Property Division Lawyer
Dividing business interests should not be done alone. If you are going through a divorce that includes a company, professional practice, or partnership, you should hire a property division lawyer.
An experienced lawyer can help you navigate Texas property division laws and provide advice when dividing your business. Your lawyer can collaborate with business valuation professionals to maintain your separate property and negotiate with your spouse to achieve a fair settlement for you and your family. Do not go through a divorce involving complex assets without an experienced attorney on your side.
FAQs
How Do You Separate When You Own a Business Together?
When owning part of a business with someone else, separation usually begins by reading any operating agreements or shareholder agreements. These agreements may already dictate the terms of buyouts, business valuations, and exit strategies.
If there are no existing agreements, then the business partners may negotiate a buyout or otherwise sell the business. You and your co-owner may also continue operating as co-owners with different roles within the company. Oftentimes, a business attorney and accountant are consulted.
What Happens When Business Partners Split Up?
The partners may split up the business in any number of ways. Unless they have agreed otherwise in their partnership agreement or as required by applicable law, typical outcomes include one partner purchasing the other out, selling the business, splitting the proceeds, or dissolving the company.
Often, there are disagreements over valuation, who assumes debt or responsibility, and what obligations continue after the split. They may have to mediate or end up in court to resolve the issue.
How Do You Separate From a Business Partner?
Splitting from a business partner often requires valuing the company, negotiating exit terms, and transferring ownership interests. The partner buyout may involve a buy-sell agreement, debt refinancing, and updating licenses and contracts. An attorney can help draft separation terms that protect your financial interests, limit future liability, and comply with your state’s business and property division statutes.
How Does a 70/30 Partnership Work?
A 70/30 partnership means that one partner owns 70% of the business and the other owns the remaining 30%. Percentage of ownership typically governs the distribution of profits, voting rights, and control, unless otherwise provided in the partnership agreement. Majority rule generally applies, giving the majority partner greater control, but the agreement can address rights and protections for the minority partner.
Contact the Law Office of Ben Carrasco, PLLC, Today
Your business is important, and it shouldn’t have to unnecessarily suffer in the event of a divorce. The Law Office of Ben Carrasco, PLLC, can help protect your business interests. Contact us today for more information.
